Friday 1 July 2022

What are the characteristics of innovative businesses?

Innovation has generally been recognised as essential for value creation, both for individual companies and for the UK economy as a whole. The development of new ideas, processes and technologies and their flow across different sectors is a significant driver of economic growth and productivity. Recently, innovation has also been identified as crucial to the transition of the economy away from fossil fuels and carbon-intensive business activities.

There are many factors that affect whether and how businesses innovate, for example, the availability of skills and capital, and government policy measures such as tax incentives.

However, none are more important than the company’s own culture, capabilities and internal systems – all of which are aspects of its governance. Unless companies are governed in a way that is conducive to innovation, they are unlikely to be in a position to take advantage of new opportunities.

Our most innovative clients share some key characteristics:

       They invest in activities with uncertain outcomes, of which the likely commercial return is difficult to quantify and the risk of failure is higher than normal;

       They benefit from the availability of company-specific skills, which may be highly specialised;

       They have a culture which encourages flexibility, experimentation and a high level of individual decision-making; and

       They require a longer-term time investment horizon than many other kinds of business activity.

Research and development (R&D) is the process of taking an idea and transforming it into a fully-fledged product or procedure. R&D tax credits are a government incentive designed to encourage innovation across multiple industries. This is an opportunity for you to reduce your corporation tax bill or receive a refund from HMRC based on the number of working hours and relevant costs your business dedicates to research and development. Under the scheme, SMEs can claim back up to 33% of the costs associated with R&D.

If you are looking for long-term finance to support innovation, you will need to ensure your management accounts are up to date and provide detailed lists of debtors and creditors. You may also need to provide up-to-date projections before an expert will consider your application.

Please talk to us about R&D tax credits and long-term finance. Our independent experts have many years of experience and success in advising businesses across a wide range of sectors.

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